Hedge funds raised bullish gold wagers to the highest in more than 14 months amid mounting concern that the U.S. economic recovery is weakening.
The net-long position climbed 25 percent to 113,911 futures and options in the week ended Feb. 25, the highest since December 2012, U.S. Commodity Futures Trading Commission data show. Net-bullish holdings across 18 U.S.-traded commodities advanced 16 percent to 1.45 million contracts, the most since April 2011. Coffee wagers reached a 33-month high.
Investors’ return to gold after the bear market in 2013 drove prices 6.6 percent higher last month, the most since July. The U.S. economy grew at a slower pace in the fourth quarter than previously estimated, giving the expansion less momentum heading into 2014. China’s yuan tumbled the most on record on Feb. 28, adding to concern about emerging-market growth and spurring demand for alternative assets.
“There are some major concerns about the erosion of the U.S. economy,” said Jeffrey Sica, who helps oversee more than $1 billion of assets as president of Sica Wealth Management in Morristown, N.J. “The devaluation of currencies will continue, and it’s going to further accelerate the upside appreciation of gold. As we see more trouble out of China and emerging markets, it’s going to become more of a safe-haven investment than it’s been in the past year and a half.”
Futures climbed 12 percent to $1,343 an ounce in New York this year. The Standard & Poor’s GSCI gauge of 24 raw materials advanced 4.3 percent and the MSCI All-Country World Index of equities lost 0.3 percent. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, fell 0.3 percent. The Bloomberg Treasury Bond Index rose 2 percent.
Assets in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, climbed last month by the most since September 2012.
Gold’s 60-day historical volatility reached 16.75 on Feb. 27, the lowest since April, when the metal fell into a bear market. The declines come after prices were whipsawed in 2013, driving some investors to lose their faith in the metal as a store of value. In July, the 60-day measure touched the highest since April 2009. Open interest, or the number of contracts outstanding on the Comex, gained 4.3 percent in February, snapping three months of declines.
Purchases of coins, jewelry and bars, which helped fuel this year’s rally, are starting to slow amid the price gains. China’s gold imports from Hong Kong fell to 83.6 metric tons in January from 91.9 tons in December, according to data from the Hong Kong Census and Statistics Department Feb. 25. Gold-coin sales by the U.S. Mint dropped 66 percent in February from a month earlier to 31,000 ounces, the lowest since September.
Federal Reserve Chair Janet Yellen said Feb. 27 the bank will likely keep trimming asset purchases as policy makers monitor economic data to determine if the recent weakness is temporary. The Fed cut monthly bond buying by $10 billion in the past two meetings, leaving purchases at $65 billion. Gold jumped 70 percent from December 2008 to June 2011 as the central bank bought debt.
Prices plunged 28 percent last year, the most since 1981. Gold held in global ETPs tumbled 33 percent in 2013, and the value of the assets dropped $73.4 billion. Goldman Sachs Group Inc. sees the metal dropping to $1,050 by the end of the year.
“Once we begin to see the U.S. economy gain momentum, then you will see the dollar strengthen and gold quickly give back gains,” said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors, which manages $1.4 trillion. “Our advice to investors is, use this rebound in gold to take profits and move the money elsewhere.”
Investors turned bullish on copper for the first time in a month, with the net-long position reaching 1,459 contracts as of Feb. 25, compared with a net-short holding of 8,888 a week earlier, the CFTC data show. Inventories monitored by the London Metal Exchange dropped for eight consecutive months, the longest streak since May 2012.
Bets on a rally for crude oil climbed 2.2 percent to 339,052 contracts, the most since data began in 2006. West Texas Intermediate advanced 5.2 percent last month in New York. Supplies at Cushing, Oklahoma, the delivery point for the futures, reached the lowest since Oct. 18, the Energy Information Administration said Feb. 26.
A measure of speculative positions across 11 agricultural products jumped 22 percent to 701,961 contracts, the most since September 2012, the CFTC data show. The S&P GSCI Agriculture Index of eight commodities climbed 9.7 percent in February, the biggest monthly advance July 2012. The measure is rebounding after tumbling 22 percent in 2013, the most since 1981.
Investors boosted their net-long position in coffee by 15 percent to 27,866 contracts, the highest since May 2011. Arabica-coffee prices in New York surged 44 percent last month, the biggest gain in more than 19 years. Before February, speculators were betting on lower prices, holding a net-short position for 18 months.
After tumbling 23 percent in 2013, coffee rebounded 63 percent this year amid the driest January in six decades in Brazil, the world’s biggest grower and exporter. Crops suffered “irreversible” damage, and losses will tip the global market into a deficit in the year starting Oct. 1 in most countries, according to Volcafe Ltd., the coffee unit of commodity trader ED&F Man Holdings Ltd.
The net-bearish position in wheat shrank to 20,311 contracts from 34,402 a week earlier. Futures in Chicago climbed 8.4 percent in February, the biggest monthly advance since July 2012. Cold weather and lingering drought left 47 percent of Texas wheat in poor or very-poor condition as of Feb. 23, up from 44 percent on Feb. 16, the Department of Agriculture said.
“Bad weather equals higher commodity prices, in particular, agricultural prices,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Ala. “It does have a ripple effect into other markets, like grains. In the case of coffee, that’s all driven by the adverse weather conditions in Brazil. And that’s something that’s not fixable in the short term.”